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TMI Blog2016 (11) TMI 1643X X X X Extracts X X X X X X X X Extracts X X X X ..... ected entities started dealing in the shares from June 22, 2009. In these circumstances, even if it is held that the UPSI came into existence on 19th June, 2009 and not with effect from 21st May, 2009 as held by the AO, in the facts of present case, no fault can be found with the decision of AO, because, it is only from 22nd June, 2009 the directors, their relatives and connected entities sought to deal in the shares of the target company on the basis of UPSI which came into existence on 19th June, 2009. Since the existence of UPSI from 19th June, 2009 cannot be doubted, it was the duty of the company (Shelter Infra) to keep the trading window closed till the date of announcement of public offer on 7th August, 2009. Since this has not been done, the Company is in violation of the relevant provisions of Listing Agreement and the PIT Regulations. Accordingly, the penalty of ₹ 50 lakh imposed on the company for not closing the trading window cannot be faulted. It was contended by the Counsel for the company that the delay in disclosing the board decision to the Stock Exchange, is attributable to the Compliance Officer and the directors of the company. It is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the relevant regulations trading in the shares of the company (whether buy or sell) by an insider is prohibited. On the ground taken by the appellant that the penalty of ₹ 1 crore imposed is too harsh, we note that in other penalty orders in Appeal Nos.120 and 143 of 2014, penalty imposed on each person comes in the range of ₹ 20-30 lakh. Further, given that the appellant is an old lady who depended on her husband and the then Compliance Officer Mr. Surana and the fact that both have expired, we deem it proper to reduce the penalty from ₹ 1 crore imposed in the impugned order to ₹ 30 lakh. Very fact that the director of Shelter Infra was a business partner of the Parekh Group and that the Parekh Group traded in the shares of Shelter Infra for the first time after the UPSI came into existence, is sufficient to hold that UPSI was the reason for the appellants to trade in the shares of Shelter Infra. Accordingly, there is no reason to interfere with the AO s order in both these appeals. The argument that the appellants were not privy to the UPSI and had authorized the Chairman of Shelter Infra to negotiate in respect of their shares without being p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon order, we dispose of these five appeals having common/connected facts and which are heard together. These appeals raise the issue of trigger date of Unpublished Price Sensitive Information ( UPSI for short) and whether the company in Appeal No. 121 of 2014 failed to keep the trading window of its scrip closed during the period when UPSI was in force and whether this enabled some of the PromoterDirectors and some other entities to share the UPSI with other entities and/or trade in the shares of Shelter Infra Projects Ltd. ( Shelter Infra for short) thereby violating relevant provisions of securities laws. 2. Through these 5 Appeals, 4 adjudication orders, all of them dated 7th March, 2014, issued by the Adjudicating Officer ( AO for short) of Securities and Exchange Board of India ( SEBI for short) are impugned before us. Appeal No.121 of 2014 is filed challenging the adjudication order passed against the company Shelter Infra, whereby it was held that the appellant had violated clause 22(d) of the Listing Agreement and Regulation 12(2) read with Clause 2.1 of Schedule II of the PIT Regulations. Accordingly, penalty of ₹ 50 lakh under Section 15HB of the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omoters and M/s. Ramayana Promoters Pvt. Ltd. ( RPL for short) have entered into a Share Purchase Agreement ( SPA for short) for the sale of 35.5% shares of the company held by the promoters of Shelter Infra at the rate of ₹ 80 per share which would also result in change in the management of the company. Therefore, the company had to make an open offer for acquisition of at least 20% of the shares from public shareholders. 8. The investigation further found that the appellant company did not close the trading window during the period when the SPA was being negotiated. This enabled some of the promoter directors and other entities to trade in the scrip during the UPSI period taking advantage of the UPSI. It was also held that one of the Directors of Shelter Infra shared the UPSI with certain other entities who traded in the scrip while possessing the UPSI. 9. The SPA was placed before the meeting of the board of directors held on 30.07.2009 and signed on 31.07.2009. The information that the board approved the SPA had to be disclosed to the stock exchange within 15 minutes of the conclusion of the board meeting and the announcement relating to the public o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against Shri Surana were abated on account of his death and all directors were exonerated of any responsibility as it was stated in the said order that compliance of the regulatory provisions was the responsibility of the Compliance Officer. 13. Learned counsel for the appellant also pleaded for leniency as an alternative taking totality of the facts and circumstances of the case. Under Section 15 HB of the SEBI Act, 1992, wherein maximum of ₹ 1 crore is imposable for late disclosure of the board s decision, ₹ 50 lakh has been imposed which is very high because there is only one day s delay. Similarly, under Section 23A(a) of the Securities Contracts (Regulation) Act, 1956 ( SCRA for short), the penalty for delay of everyday is only ₹ 1 lakh while the maximum is ₹ 1 crore and in the instant matter the delay was only 7 days and as such penalty should have been only ₹ 7 lakh instead of ₹ 50 lakh imposed. The learned Counsel for the appellant relied on certain other orders such as M/s. Oregon Commercial Ltd. (SEBI order dated 30.08.2011), Order dated 20.03.2013 passed by this Tribunal in the matter of Sunday Exports Ltd. vs SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra revealed that some of the promoters and other entities were trading in the scrip of this company when certain Unpublished Price Sensitive Information (for short UPSI ) was in force which was neither disclosed to the stock exchange nor the trading window was closed by the company during the UPSI period. 17. It is on record that the appellant in this appeal had bought 5000 shares of Shelter Infra on 3rd July, 2009, which according to the impugned order is during the UPSI period and the appellant being an insider attracts provisions of the PIT Regulations that during the existence of UPSI no insider can deal in the securities of the company. 18. Mr. P.N. Modi, the learned Senior Counsel for the appellant extensively argued the matter. It was argued that the appellant is a senior citizen even during the investigation period and has never traded in the securities market on her own. Whatever trading in her name was being done by her husband and in the instant case it is admitted that 5000 shares of Shelter Infra was bought in the appellant s name. It is, however, argued that she was not privy to insider information nor any existence of UPSI nor traded on he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice was issued only on 28th August, 2012 after a gap of three years from the investigation period and as such the Compliance Officer could not present the details before the AO. It was also argued that for an investigation period covering April to September, 2009, show-cause notice was issued 3 years later in August, 2012 and the AO has been changed three times and the impugned order was issued on 7th May, 2014. Because of these undue delays, many of the key entities such as Compliance Officer and even the Chairman and Promoter i.e. the husband of the appellant could not join the investigation to prove their innocence. As the appellant s husband was a cancer patient, his replies were also not made with complete focus of mind and he had to take the help of the former Compliance Officer who left the company several years ago. 21. It was further argued that the crux of the question is the trigger date of the UPSI. In the impugned order, the AO of SEBI has erred completely and came to an arbitrary date of 21st May 2009 while no Noticee from the target company s side has given any such date during their evidence before the respondent-SEBI. It is only from the email dated 22nd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant appeal, the appellant did not sell the shares either during the open offer or even for quite sometimes thereafter but that does not absolve an insider from violation because it is not necessary that sale has to take place, buy itself is also an offence. APPEAL NO.128 OF 2014 23. The appellant in this appeal had been a director of Shelter Infra during the relevant period. By the impugned order dated 7th March, 2014 issued by the AO of SEBI against the appellant as well as 7 other noticees (Appellants in Appeal No.120 of 2014), a penalty of ₹ 1 crore has been imposed against the appellant under Section 15G of the SEBI Act for violating Regulations 3(i), 3(ii) and 4 of the PIT Regulations. The impugned order held that the appellant as Director of Shelter Infra and a close associate of the Parekh Group (7 others held guilty by the said impugned order) was privy to the UPSI relating to Shelter Infra and passed on the same to the Parekh group entities. It is on record that the appellant had been a Director of Shelter Infra from February, 2008 to August, 2012 and a Director of RPL from July, 2009 to June, 2014; the target company and acquirer compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Parekh Group. There has been extensive financial dealings between Parekh Group and the appellant as per record. The Parekh Group entities had never invested in Shelter Infra before 22nd June, 2009. Whatever was invested was held on till the open offer and mostly sold during the open offer. There is no substantiation regarding the market buzz which Parekh Group was admittedly using/relying on while trading in the scrip of Shelter Infra; passing on insider information cannot be established with 100% proof as no such record would be maintained by anyone and as such it has to be inferred through totality of circumstantial evidences. In the present case the appellant was a close business associate of Parekh Group entities for several years, he was in the board of the target company as well as acquiring company, he cannot be claiming ignorance about the existence of the SPA and the consequent UPSI just by claiming that he did not attend the meeting of the board of directors of the target company. All these altogether prove that he was aware of the UPSI and provided that information to be used by Parekh Group entities to trade in and benefit from UPSI. APPEAL NO.120 OF 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving any insider information and trading based on it. 29. Mr. Shyam Mehta, learned Senior Counsel for the Respondent argued that Shanti Ranjan Paul s connection with Parekh group is more than proved by the fact that he was their business partner, there has been loan dealings without any collateral; Paul and Parekh had been the directors in Palmer Hospitality, the Parekhs had never invested in Shelter Infra before 22nd June, 2009 and small cap scrips are not their normal investments. Evidences gathered during investigation, reply to show cause notice etc. show that they never denied their association with Shanti Ranjan Paul and Parekh Group entities became insider under Regulation 2(e)(ii) because of all the evidences taken together. APPEAL NO.143 OF 2014 30. Appellant No.1 in this appeal had been a whole time director of Shelter Infra during the investigation period and appellant no.2 is his son, as such admittedly both are insiders. Admittedly, both have traded during the period of UPSI. Accordingly vide the impugned order dated 7th March, 2014 a penalty of ₹ 10 lakh under Section 15HB of the SEBI Act and₹ 20 lakh under Section 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the UPSI cannot be doubted and hence their trading irrespective of whether fully sold or not is relevant. On the SEBI Clarification of six months waiver relied on by the appellant as given at para 31 above, learned Senior Counsel for SEBI stated that the six months waiver is available for shares held on the date of notification of the new regulations, but such a waiver can be used only once i.e. for instance for sale of the existing shares but not for buying again within the next six months. It is on record that though appellant no.1 did not sell the shares he bought during the UPSI during the open offer but it was sold prior to the open offer itself. Moreover, he sold 4600 shares which he held since April, 2009 during the open offer. Therefore, he sold more shares in the open offer and benefitted from the UPSI than the quantity he bought and sold in July, 2009 prior to the open offer. All these evidence point out that appellant no.1 as a whole time director of Shelter Infra has indulged in insider trading and abetted such trading of his son who is appellant no.2. Therefore, the penalty imposed to the tune of ₹ 30 lakh on appellant no.1 for two violations and ₹ 20 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading window closed till the date of announcement of public offer on 7th August, 2009. Since this has not been done, the Company is in violation of the relevant provisions of Listing Agreement and the PIT Regulations. Accordingly, the penalty of ₹ 50 lakh imposed on the company for not closing the trading window cannot be faulted. It was contended by the Counsel for the company that the delay in disclosing the board decision to the Stock Exchange, is attributable to the Compliance Officer and the directors of the company. It is submitted that since the promoter-directors of the company have been exonerated vide order of the AO of SEBI dated 28th June, 2013,in the present case, the company cannot be made liable. We see no merit in the above contention. It is the overall responsibility of the company and the board of directors to ensure that the Code of Conduct is followed in letter and spirit. In our opinion, the AO was not justified in holding the Compliance Officer alone was responsible for closing the trading window and disclosing the Board resolution to the Stock Exchange. Therefore, fact that the AO has erroneously held that the directors are not liable cannot be a grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that in other penalty orders in Appeal Nos.120 and 143 of 2014, penalty imposed on each person comes in the range of ₹ 20-30 lakh. Further, given that the appellant is an old lady who depended on her husband and the then Compliance Officer Mr. Surana and the fact that both have expired, we deem it proper to reduce the penalty from ₹ 1 crore imposed in the impugned order to ₹ 30 lakh. 37. We do not agree with the arguments made by learned Counsel for appellants in Appeal No.128 of 2014 wherein it was submitted that the appellant Shanti Ranjan Paul was not privy to any insider information and as such he could not have shared it with the Parekh Group (Appellant in Appeal No.120/2014). Being a director of both the companies i.e. the target as well as the acquirer company, the appellant cannot take shelter by alleging ignorance that just because he did not attend the two meetings of the Board of the target company held prior to the signing of the SPA, he was not privy to the information. Not attending the two meetings of the board of directors of the target company when rules permitted him to attend the same, without assigning any reason itself shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct and PIT regulations) and ₹ 20 lakh imposed on appellant no.2 for one violation (PIT regulations) in the impugned order cannot be said to be unreasonable or excessively harsh. 39. Various decisions relied on by the learned Counsel for the appellant are distinguishable on facts. In these appeals before us, it is established beyond doubt that UPSI came into existence at least on 19th June, 2009. All the directors and their relatives are covered under the definition of insider . The Parekh Group having business dealings and partners in business concern with an insider are covered under connected people. Passing on the information needs to be judged from the context and in the instant context it is not disputed that the Parekh Group started trading from 22nd June, 2009 after the UPSI came into existence. Thus, the company, its directors and their relatives and connected entities are guilty of violating the provisions of the securities laws, they are liable for action under the SEBI Act and/or SCRA. 40. In conclusion, we dispose of the five appeals as follows:- (i) Appeal No.120 of 2014 Appeal is dismissed. (ii) Appeal No.121 of 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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